Page images
PDF
EPUB

to fix such rates as will yield a profit upon its aggregate business."

§ 462. Plant adapted for larger population.

8

Where a costly plant is built with the purpose of supplying a large future population, the customers served before the full development of the territory cannot be forced to pay the full expense. The plant must be operated for a fair compensation, even though it results in a loss to the company, and the company must recoup itself, if at all by charging these losses to construction account as part of the expense of establishment. On this question Mr. Justice Holmes, in San Diego Land and Town Company v. Jasper, said: "The supervisors, in determining the rates, assumed that the amount of water available for outside irrigation, apart from the amount used and paid for by National City, was enough for a little over 6,000 acres, and on that point there is no serious dispute. Then they fixed the rate as if the company supplied this 6,000 acres, although such was not the fact. Of course, the amount actually received for the water actually furnished was correspondingly less than the receipts as estimated by the supervisors upon their assumption. If there were no force in any of the arguments for the appellees which we have passed by, the result of this mode of estimate might be that the appellant did not get 6 per cent. on the total value of its plant. But here, again, we have to distinguish between Constitution and statute. If a plant is built, as probably this was, for a larger area than it finds itself able to supply, or, apart from that, if it does not, as yet, have the customers contemplated, neither justice nor the Constitution requires that, say, two-thirds of the contemplated number should pay a full

return." 9

8 189 U. S. 439, 47 L. Ed. 892, 23 Sup. Ct. 571 (1903).

9 Acc. Boise City I. & L. Co. v. Clark, 131 Fed. 415, 65 C. C. A. 399 (1904).

TOPIC E-DIVISION BETWEEN INTERSTATE AND INTRASTATE

BUSINESS.

§ 463. Alternative theories of apportionment.

Where a road runs through several States, it is quite obvious that in determining the reasonableness of a rate established by one of the States the situation of the whole line must be considered. One of two plans must be adopted: If the income of the whole line is taken as a basis of inquiry, then the possibility of the other States fixing a similar rate must be considered; or if, on the other hand, the one rate is considered its reasonableness must be determined by an examination of the capitalization and income of the road within the particular State. This was pointed out by Mr. Justice Brewer in the leading case of Chicago & Northwestern Railway v. Dey: "Defendant's road runs through other States; these States may impose no schedule of rates; part of its business is interstate, and only Congress can limit that; so that from the business elsewhere revenues may be earned which will enable it to make up any deficiency in this State. But the invalidity of this schedule does not depend upon legislation or action elsewhere. If this schedule may be put in force here, a similar one may be in Illinois, Minnesota, and other States through which the company's road runs. For some purposes its property in this State is separate and distinct from its property elsewhere, and out of this property within this State it is entitled to receive some compensation. Robbing Peter to pay Paul has never received judicial sanction."

464. Whether State lines are arbitrary.

The first alternative that the reasonableness of the rate must be determined upon the assumption that the same rate will be adopted throughout the whole system was that applied in

135 Fed. 866, 1 L. R. A. 744, 2 Int. Com. Rep. 325 (1888).

Mr. Justice Canty

Steenerson v. Great Northern Railway.2 said: "It seems to us that there is scarcely any good reason why a railway system should be divided on State lines at all, for the purpose of fixing rates. After rejecting the portions that are not self-supporting, the balance of the system may be considered as a whole; and, in fixing rates in one State, it will only be necessary to see that, if rates are properly adjusted throughout so as to correspond with the rates thus fixed, the whole of such balance of the system will yield a reasonable income on the cost of reproducing the same. In determining what is a proper adjustment of rates between the different portions of the system, every case must depend on its own circumstances."

465. Constitutional requirement for division.

The Supreme Court of the United States, however, has adopted the other alternative, and has separated the value of the plant used for merely intra-state business and the net earnings from such business, thus determining the reasonableness of the rate fixed by the State. The leading case on this point is Smyth v. Ames.3 Mr. Justice Harlan said in that case: "It is further said, in behalf of the appellants, that the reasonableness of the rates established by the Nebraska statute is not to be determined by the inquiry whether such rates would leave a reasonable net profit from the local business affected thereby, but that the court should take into consideration, among other things, the whole business of the company, that is, all its business, passenger and freight, interstate and domestic. If it be found upon investigation that the profits derived by a railroad company from its interstate business alone are sufficient to cover operating expenses on its entire line, and also to meet interest, and justify a liberal dividend upon its stock, may the legisla

2 69 Minn. 353, 72 N. W. 713 (1897).

3 169 U. S. 466, 42 L. Ed. 819, 18 Sup. Ct. 418 (1898).

ture prescribe rates for domestic business that would bring no reward and be less than the services rendered are reasonably worth? Or, must the rates for such transportation as begins and ends in the State be established with reference solely to the amount of business done by the carrier wholly within such State, to the cost of doing such local business, and to the fair value of the property used in conducting it, without taking into consideration the amount and cost of its interstate business, and the value of the property employed in it? If we do not misapprehend counsel, their argument leads to the conclusion that the State of Nebraska could legally require local freight business to be conducted even at an actual loss, if the company earned on its interstate business enough to give it just compensation in respect of its entire line and all its business, interstate and domestic. We cannot concur in this view. In our judgment, it must be held that the reasonableness or unreasonableness of rates prescribed by a State for the transportation of persons and property wholly within its limits must be determined without reference to the interstate business done by the carrier, or to the profits derived from it. The State cannot justify unreasonably low rates for domestic transportation, considered alone, upon the ground that the carrier is earning large profits on its interstate business, over which, so far as rates are concerned, the State has no control. Nor can the carrier justify unreasonably high rates on domestic business upon the ground that it will be able only in that way to meet losses on its interstate business. So far as rates of transportation are concerned, domestic business should not be made to bear the losses on interstate business, nor the latter the losses on domestic business. It is only rates for the transportation of persons and property between points within the State that the State can prescribe; and when it undertakes to prescribe rates not to be exceeded by the carrier, it must do so with reference exclusively to what is just and reasonable, as between the carrier and the public, in respect of domestic business. The argument that a railroad line

is an entirety; that its income goes into, and its expenses are provided for, out of a common fund; and that its capitalization is on its entire line, within and without the State, can have no application where the State is without authority over rates on the entire line, and can only deal with local rates and make such regulations as are necessary to give just compensation on local business."4

466. Methods of division.

The method of procedure in such a case is to find what part of the gross receipts is derived from business within the State, and then find the actual cost of doing the business. This cannot be found by taking a proportionate part of the cost for the entire line, since the cost of moving local freight is greater than that of moving through freight. "Additional fuel is consumed at each station where there is a stop. The wear and tear of the locomotive and cars from the increased stops and in shifting cars from main to side tracks is greater; there are the wages of the employees at the intermediate stations, the cost of insurance, and these elements are so varying and uncertain that it would seem quite out of reach to make any accurate comparison of the relative cost. And if this is true when there are two separate trains, it is more so when the same train carries both local and through freight. It is impossible to distribute between the two the relative cost of carriage. Yet that there is a difference is manifest, and upon such difference the opinions of experts familiar with railroad business is competent testimony, and cannot be disregarded." The fact that an exact mathematical computation of the cost is impossible is immaterial; the cost must be found, as best it may, before the reason

4 Accord Chicago, M. & St. P. Ry. v. Thompkins, 176 U. S. 167, 44 L. Ed. 418, 20 Sup. Ct. 336 (1900), affirming s. c. 90 Fed. 363 (1898); Chicago, M. & St. P. Ry. v. Smith, 110 Fed. 473 (1901); State v. Atlantic Coast Line et al. (Fla.), 37 So. 652 (1904); State v. Seaboard Air Line (Fla.), 37 So. 658 (1904).

« PreviousContinue »